No, This Isn't Inflation

Gary Tanashian argues that the current oil price surge due to Middle East conflict is not traditional inflation but a war-driven commodity supply shock. He distinguishes this from the true inflation that began in Q1 2020, triggered by the Federal Reserve's monetary expansion and fiscal stimulus under the Trump administration during the Covid crisis, which the Biden administration subsequently continued. This monetary-driven inflation fundamentally differs from commodity price spikes caused by geopolitical tensions. Tanashian explains the macroeconomic backdrop as a transition from a long-term disinflationary environment driven by falling Treasury yields toward an eventual inflationary regime. However, the current oil price pressures are more likely to slow economic growth and risk pushing economies toward recession or stagflation rather than traditional inflationary overheating. The Federal Reserve’s ability to combat inflation effectively may be impaired given the new upward trend in long-term interest rates, complicating policy responses. The analyst maintains a near-term disinflation outlook despite the recent oil shock, emphasizing that war-related commodity price shocks typically act as economic dampeners rather than sustained inflation drivers. Longer-term, the interplay of higher interest rates and structural macro changes suggests a challenging environment, with stagflation risks key for precious metals markets given their traditional roles as inflation and geopolitical hedges. Traders should watch for shifts in growth momentum and inflation expectations as central banks navigate this evolving landscape.